Instruments drawn to the special attention of the House:
Draft Green Gas Support Scheme Regulations 2021
Date laid: 9 September 2021
Parliamentary procedure: affirmative
1.These draft Regulations propose a new Green Gas Support Scheme (GGSS) to replace the current Renewable Heat Incentive (RHI) scheme which has closed to new applicants. The aim of the GGSS is to encourage renewable generation of heat through the production of biomethane by anaerobic digestion for injection into the National Gas Grid. Biomethane producers will be supported through a tariff mechanism funded by a levy on fossil gas suppliers, unlike the RHI scheme which was funded by taxpayers. The Department for Business, Energy and Industrial Strategy expects that the levy costs will be passed on to consumers but estimates that these costs will be “minimal”, adding a maximum of £4.70 to annual bills by 2028. While we note that the increase in costs for consumer is expected to be small, we welcome the Department’s commitment to monitor the impact of the GGSS on consumers and fuel poverty which will be particularly important against the background of significant increases in gas prices. Given that the GGSS is designed to contribute to the UK’s target of achieving net zero greenhouse gas emissions by 2050, the draft Regulations may be of interest to the House in the run-up to the UN Climate Change Conference (COP26) in Glasgow in November.
2.The draft Regulations are drawn to the special attention of the House on the ground that they are politically or legally important and give rise to issues of public policy likely to be of interest to the House.
3.These draft Regulations have been laid by the Department for Business, Energy and Industrial Strategy (BEIS) with an Explanatory Memorandum (EM) and Impact Assessment (IA). They propose a new Green Gas Support Scheme (GGSS), which is to continue to promote biomethane production in order to decarbonise the gas grid, following the closure of the Renewable Heat Incentive (RHI) scheme to new applicants. The intention is to launch the GGSS on 30 November 2021.
How the GGSS will work
4.According to BEIS, the aim of the GGSS is to encourage renewable generation of heat through the production of biomethane by way of anaerobic digestion (AD)1 for injection into the National Gas Grid. BEIS says that increasing the proportion of green gas in the grid is a practical, established, and cost-effective way of reducing carbon emissions. (The IA states that as of December 2020, the RHI has supported 95 biomethane to grid plants and that in 2019 it supported the production of around 3.6 terawatts per hour (TWh) of biomethane injected into the grid.) BEIS expects the new GGSS to generate 2.8TWh per year at peak production (between 2029/30 and 2040/41) and to contribute 8.2 Million tonnes carbon dioxide equivalent (MtCO2e) of carbon savings over its lifetime, contributing to the UK’s target of achieving net zero greenhouse gas emissions by 2050.
5.Under the GGSS, biomethane producers will be required to produce at least 50% of their biomethane using waste or residue feedstocks which, according to BEIS, have higher carbon savings and a lower environmental impact on soil and water quality than bioenergy crops. The GGSS will support the production of biomethane by way of AD only, and payments will only be made for biomethane injected into the grid. To encourage new deployment, producers using equipment which has already been used to produce biomethane, including under the RHI scheme, may not apply to be registered with the GGSS. BEIS says that the GGSS may be opened up in future to supporting other green gases, such as hydrogen.
Green Gas Levy
6.Unlike the RHI scheme, the GGSS will not be funded by the taxpayer. Instead, it will support biomethane producers through a tariff-based mechanism, funded by levy payments which will be collected from fossil fuel gas suppliers. The draft Order therefore proposes a new Green Gas Levy (GGL) to fund the GGSS. Gas suppliers which provide at least 95% biomethane under the scheme will be exempt from the GGL. The Gas and Electricity Markets Authority (Ofgem) will administer both the GGSS and the GGL.
7.Asked whether the launch date of 30 November has given industry enough time to prepare for the new scheme, BEIS told us that:
“In the Government Response in March, we set out details on the approach and broad timings for the GGL and GGSS, which has given suppliers over a year to start preparing for the first levy collection, and prospective applicants over 8 months to prepare for the opening of the GGSS. We made a public commitment to give suppliers approximately six months’ notice between scheme launch and levy rate publication and the first levy collection, which will be in the first quarter of FY [financial year] 2022. This follows feedback from suppliers that they will require three to six months to undertake the necessary changes to systems and notify customers and collect any funds.”
8.The GGL will levy fossil fuel gas suppliers at a flat rate (pence per day) for every meter point they supply. Each meter point will be levied at the same amount, irrespective of gas consumption or customer type. The rate will be set each year, and gas suppliers will pay the levy on a quarterly basis. BEIS explains that this meter point design is relatively straightforward to implement and can therefore be delivered within the short timescales needed to launch the GGSS, and that it also provides gas suppliers and consumers with a high certainty of costs.
9.The Department acknowledges, however, that during consultation,2 respondents’ views were evenly split between support for this approach and support for a “volumetric” levy instead. Under a volumetric levy, gas suppliers would be charged based on the volume of gas they supply, and suppliers would be expected to pass on the costs in this way, so that consumers using less gas would be charged less. BEIS says that concerns were raised during consultation that the per meter point approach was regressive and unfair for vulnerable consumers and those using small amounts of gas, compared to a volumetric levy.
10.The Department says that the Government intend to transition to a volumetric levy as soon as possible, once a number of feasibility issues have been resolved, including in relation to cost impacts on energy intensive industries and seasonal variations in gas consumption. Asked about the timing of the planned switchover, the Department told us that:
“[W]e expect to transition to a volumetric levy as soon as possible and are actively working to deliver this. While we are as yet unable to set out a timetable for moving to a volumetric levy, we expect the transition to happen before costs peak [in 2028]. The government will consult fully on any new proposals in this area.”
Budget and costs
11.The GGSS will pay registered biomethane producers over a 15-year period, and there will be tariff guarantees to provide certainty to investors. An annual cap will keep the GGSS within the budget raised by the levy. The Department will publish a levy maximum collection figure before the GGSS is launched, giving gas suppliers certainty on costs.
12.With regard to the budget, the IA estimates that tariff payments will be between £1,020 million (low deployment scenario) and £1,985 million (high deployment scenario), with a central estimate of £1,765 million up to 2035/36 (in 2020 prices). After 2035/36, spending will decline as tariff payment periods for supported plants end. The IA estimates the maximum levy collection figure for a single year to be around £190 million (in 2020 prices) based on high deployment forecasts.
13.The Department anticipates that fossil fuel gas suppliers will pass on their costs to gas bill payers but expects this impact to be “minimal” compared to other policy costs on gas. For domestic consumers, BEIS expects additional annual costs to peak at £4.70 by 2028. BEIS states in the IA that its estimates “show that the impact of the levy on fuel poverty metrics, such as the average fuel poverty gap and the Low Income Low Energy Efficiency (LILEE), is minimal”, adding that the Department “will continue to monitor the impacts of the levy throughout the life of the scheme as there will be a monitoring and evaluation process for both the scheme and levy, including monitoring costs on consumers and impacts on fuel poverty”. While we note that the increase in costs for consumers is expected to be small, we welcome the Department’s commitment to monitor the impact of the GGSS on consumers and fuel poverty which will be particularly important against the background of significant increases in gas prices.
1 AD is a process for turning biomass waste, such as animal manure, sewage sludge and waste food, into energy and fuel. Biomass waste can be digested in the absence of oxygen to produce a methane-rich biogas which can be used to generate heat and power or to provide fuel for transport. The biogas can be upgraded to biomethane which is potentially suitable for injection into the National Gas Grid. AD can be carried out on a small-scale, for example on a farm, or at a business producing large volumes of food waste or in large centralised systems, for example at sewage treatment works.
2 BEIS, Future Support for Low Carbon Heat & The Green Gas Levy (March 2021): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/970565/green-gas-levy-future-support-low-carbon-heat-govt-response.pdf [accessed 13 October 2021].